Information About The Revolving Fund Special Account

Background of the Proposal. When Owens-Brockway ceased operations at its plant on Packard Highway in 2010, it violated the terms of an agreement with the City entered into in 1999 at the time it had applied for a tax abatement for improvements made at the plant. The City pursued legal action against the company in order to enforce the damages provisions of the contract. The City prevailed in this action. That resulted in a monetary judgment of $4.4 million. In accordance with the terms of the agreement, a portion of the judgment was distributed to other taxing jurisdictions including the Charlotte Public Schools and Eaton County. The City’s share, after reimbursement for legal and other services, was $883,000. A portion of this amount was used to replace and upgrade weather warning sirens but slightly more than $800,000 has remained in the City’s fund balance.

Since the time of the judgment in 2015, City Council has discussed how best to use the funds. Council members recognized the unique nature of these monies. No other city in Michigan had ever attempted to pursue a similar legal action. Further, it is highly unlikely that a similar windfall would ever come the City’s way. Accordingly, Council members expressed a desire to use the funds in a way that would insure they would remain an asset for the City for many years to come.

At the same time, Council members were concerned with how to meet the demand for financing public improvement projects such as street reconstruction and rehabilitation. While the magnitude of the problem was acknowledged, Council members expressed little support for incurring the interest expense associated with selling bonds to finance a large street improvement program.

Council eventually assembled a list of streets that were top candidates for reconstruction. In proposing a six-year plan for paying for the projects, City Manager Gregg Guetschow suggested using the $800,000 from the Owens-Brockway judgment as a zero-interest revolving loan fund to be repaid over time so the monies would be available for future street improvement projects.

The one problem with this approach is that it is dependent upon future Councils to budget to repay the monies once they have been used for a specific project. To address this concern, Mr. Guetschow proposed establishing a revolving loan account through a Charter amendment that would limit the uses of the funds and require that they be repaid.

Why is a Charter Amendment Necessary? The Charter is like the City’s constitution. It sets out the way in which Charlotte City government is to be operated. It is voted on by City residents and any changes to it must be approved by voters. Moreover, its provisions can be enforced by a suit brought against City officials if the terms of the Charter are violated.

Except in cases of contracts and similar legal documents, actions taken by one City Council are not necessarily binding on a future City Council. With respect to the Owens-Brockway funds, then, it is possible for a City Council to borrow them for a street project with the intent to repay them but a future Council could decide that they did not wish to make those payments.

The Charter amendment eliminates that uncertainty. It limits the purposes for which the funds can be used and requires that they be repaid.

What are the Key Features of the Charter Amendment? The proposed Charter amendment would add a new subsection to Section 7.6 of the Charter that does the following:

It establishes an $800,000 Revolving Loan Special Account that could be used only for “extending, altering, constructing, or repairing designated public improvements and for the purchase of equipment;”

It requires a vote of the citizenry if City Council wishes to use the funds for any purpose other than those described above;

It permits the Council to use the funds without incurring interest;

It requires the funds used to be repaid within ten years of the date of their initial allocation;

It allows, but does not require, investment earnings from the Revolving Loan Special Account to be appropriated to the General Fund.

What If There Is Some Other Good Use for these Funds? As noted above, the funds could be used for purposes other than public improvements and equipment purchases but only after that use has been approved by the voters. The purpose for this limitation is to insure that a lot of forethought goes into the decision about how the funds are to be used.

It is also worth noting that funds used for other purposes as approved by voters must also be repaid within ten years.

Doesn’t This Provision Tie the Hands of the City Council? Yes and no. On the one hand, it limits the Council to spending the funds on public improvement projects and capital equipment and requires that the funds be repaid. On the other, it permits the Council to spend the monies for other purposes if it is able to convince voters that this is a good use of the money. Finally, the restrictions on the uses of these funds could be eliminated altogether if voters decide that is the best thing to do and repeal the new language in the future.

The ballot proposal language can be found here. The text of the language to be added to the Charter can be found here.

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